EDD in Banking – An Effective Solution for Businesses to Prevent Fraud

Businesses should concentrate on their customers as well as revenue generation in the ever-evolving world.  It implies that verifying the stakeholders is a necessity nowadays. The regulatory bodies have made Customer Due Diligence (CDD) mandatory in order to confirm that clients are reliable and won’t be a threat to businesses.  However, CDD is not an option if the company must work with high-risk clients. This includes those who are listed on sanctions lists, blacklisted or PEPs. As a result, a risk-sensitive method known as Enhanced Due Diligence (EDD) is being introduced. Consequently, EDD in banking helps financial firms identify high-risk clients and transactions and shield them from sizable losses.

What is Enhance Due Diligence (EDD)?

EDD is a component of the KYC due diligence financial services, which provide businesses with higher security. It draws attention to those risk profiles that the customer’s due diligence is unable to find. EDD in banking is designed to deal with large transactions and high-risk clients. Any financial institution is seriously threatened by a client and the transactions they conduct, so EDD constantly monitors them to ensure everything is secure.

Customer Due Diligence vs Enhanced Due Diligence

Essentially,  client due diligence) is different from  enhanced due diligence) in banking. That CDD is a less stringent verification process that only requires IDs and addresses to determine the risk category of the customer. By using the KYC risk rating system, EDD in banking identifies high-risk customers through multiple checks.

FATF on High-Risk Transactions

FATF recommends a risk-sensitive approach to handling high-risk customers and transactions. RBA (Risk-Based Approach) is required in all industries, especially in the financial industry, to identify terror financing and money laundering activities within the organization. They should take enhanced due diligence, AML, and CFT measures seriously to mitigate such threats effectively. The financial sector must assess the effects of high-risk transactions while implementing a risk-based strategy. According to the recommendations by FATF, a risk-based approach enables the state to adopt flexible policies and effectively target its resources.

EDD Requirements

A customer must physically visit the office and provide the following information in order for EDD banking to operate effectively:

  • Background details
  • Structure and source of wealth
  • Source of funds
  • Adverse media screening

The Advantages of Having EDD in Banking

EDD in banking has additional advantages besides confirming identities and reducing fraud. The benefits that the bank or any other sector can use following the implementation of EDD are listed below.

Keep Fraudsters Away

EDD in banking assists banks and other industries not only in preventing money laundering cases but also in other fraud schemes like account takeovers and financing terrorism. With enhanced due diligence, the business is protected, allowing the staff to concentrate on increasing profits and business expansion. Due to the increased strength of AML/KYC, businesses must now use these verification solutions in order to combat the rising fraud and criminal activity.

Improve Brand Credibility

Through CSR (Corporate Social Responsibility), a brand’s reputation can be improved.  However, if banks are to maintain a positive image in the marketplace, EDD in banking is also essential. All of the customers begin to have faith in the business when such a stringent monitoring system is employed. They understand there aren’t any clients who pose a high risk. As a result, this raises the company’s credibility and helps in its growth.

Keep Record Clean

Implementing EDD in banking helps the bank and other industries to avoid illegally earned or dirty money from entering the business’s system. Every financial institution aspires to have clear files with clear transactions, and EDD helps them realize this goal.

It helps them identify not only the customers but also the stakeholders and anyone else connected to the company. Incorporate a stronger layer of security to protect the company from criminal activity and money laundering.

Enhanced Customer Experience

To verify a person, an EDD process needs a lot of data.  In addition to removing clients with a history of risky transactions, the information is useful. Nevertheless, it also helps the business offer its clients the services they value.

In a Nutshell

EDD in banking is a wise choice these days when transactional fraud is so prevalent.  Along with avoiding costly fines, EDD compliance benefits banks and financial institutions. It enables them to demonstrate to their customers that all of their information is secure and that the business values its reputation.  Furthermore, the detailed information reveals the customers’ preferences. Which helps the business improve its customer experience, build its credibility, generate more revenue, and reach new heights. Hence, the information is useful for verifying the individual as well as revealing the clients’ preferences.

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